The USD/JPY exchange rate rose for six consecutive days after the latest Japan inflation data and as traders reacted to the upcoming US figures. It rose to a high of 152.80, its highest level since October 9 this year. It has now jumped by over 9.17% from its lowest level this year.

Japan inflation and stimulus 

The USD/JPY exchange rate rose after a report by the statistics agency showed that the headline Consumer Price Index (CPI) rose 0.1% in September, leading to an annualized figure of 2.9%. The annual inflation rate was higher than the median estimate of 2.7%.

This report also showed that the core inflation, which excludes the volatile food and energy prices, eased from 3.3% to 3% on an annualized basis.

These numbers remain much higher than the Bank of Japan’s target of 2.0%, meaning that there is a chance that it will hike interest rates this year. Polymarket traders are betting that officials will leave them unchanged in the meeting next week.

The Japanese yen has softened after Sanae Takaichi became the first woman prime minister of Japan this week. She immediately called for more stimulus – printing money – to tackle inflation.

Takaichi proposed a $92.19 billion stimulus, which is higher than the $92 billion that her predecessor asked for last year. In addition to tackling inflation, her measures are aimed at boosting key industries and national security.

Some of the stimulus measures include eliminating the gasoline tax and boosting grants to local governments and small and medium-sized businesses.

The challenge is that these measures typically lead to a higher inflation rate, raising the odds of more BoJ tightening.

US inflation data ahead 

The USD/JPY exchange rate rose as investors waited for the upcoming US consumer inflation data, which will come out later on Friday.

The Bureau of Labor Statistics (BLS) is publishing the report despite the ongoing government shutdown because of its role in social security administration and its cost-of-living adjustment.

Analysts believe that US inflation held steady in September. Most Polymarket traders expect the data to show that the headline CPI rose from 2.9% in August to 3.0% in September. 

Economists polled by Reuters expect the data to show that the headline CPI rose from 2.9% to 3.1% during the month.

These numbers will likely have an impact on next week’s Federal Reserve interest rate decision. A figure higher than expected will make it a bit difficult for the Federal Reserve to cut interest rates. On the other hand, a number below or in line with expectations will raise the odds of the bank cutting rates.

USD/JPY technical analysis 

USDJPY chart | Source: TradingView

The daily timeframe chart shows that the USD/JPY pair has been in a strong uptrend in the past few months, moving from a low of 139.95 in April to 152.80 today.

The pair formed a gap on October 3 after it emerged that Takaichi would become the prime minister. It then formed a golden cross pattern on October 8 as the 50-day and 200-day Exponential Moving Averages (EMA) crossed each other.

The pair has moved above the 61.8% Fibonacci Retracement level at 151.6 and the Ichimoku cloud indicator.

Therefore, the most likely scenario is where the pair pulls back a bit now that it has formed a double-top pattern at 153.13. A double-top is made up of two up-swings and a neckline, which, in this case, is at 149.

The bearish USD/JPY forecast will become invalid if it moves above the double-top level of 153.13. Such a move will trigger more gains towards the 78.6% retracement level at 154.8.

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